Vendor Relationship Management Getting What You Paid For (and More)

Stephen Guth

VP, Vendor Management

Thursday, February 26th, 2015, 8:00 – 9:00 a.m.

• Case Study Company Intro • Begin with the End in Mind • Implementation Approach • Vendor Management Fundamentals • Tools

• Vendor Classification Model • Vendor Risk Profile • Vendor Relationship Management

Activity Responsibilities

Topics

1

• Property insurer “of last resort”

• Created by Florida Legislature in 2002 as not-for-profit, tax-exempt, government entity

• Board of Governors: members appointed by Florida's Governor, President of the Florida Senate, Speaker of the Florida House and the state's Chief Financial Officer

• As of 12/2014, 661K policies in force with $229B total exposure (PIF on a planned decline)

• Procurements conducted in compliance with Florida Statute

• 650+ “AP” vendors, over $950M annual spend (millions more in loss adjusted expenses)

About Citizens

2

• Coherent and prudent approach to vendor management

• The “right” vendors • Ensure contract compliance • Attain beyond the contract value

• Support why we do what we do

Why?

3

Begin with the End in Mind

4

• Right organizational structure and right focus • Success of vendor management (post-award) dependent

on pre-award activities • Clear and concise scopes of work, deliverables,

milestones, performance measures, and solicitation requirements

• Vendor onboarding, contract kick-off, contract monitoring, relationship management

• Consider: policies / procedures; RACI; templates and tools; and, communication and training

Vendor Management Governance Areas

5

Governance Area Description Program The Vendor Management Program is defined, communicated, followed, and

continuously improved

Demand Demand for vendor services is captured, planned, tracked and managed, with qualified vendors being engaged through sound sourcing decisions

Contract Vendor relationships are defined by robust contracts with clear rights, obligations, and remedies that are efficiently administered throughout the vendor lifecycle

Risk Vendor-related risks are identified, assessed, mitigated where possible, and tracked

Security Citizens’ data and intellectual assets accessible by vendors are protected and secured—contractually, logically, and physically—as required by Citizens

Performance Vendor delivery and contract performance are monitored against measurable criteria to achieve compliance-to-contract and managed to attain “beyond the contract” value

Financial In compliance with internal controls, vendor spend is approved, projected, tracked, analyzed, and reconciled to ensure appropriate use of Citizens’ funds, realize expected financial benefits, and identify opportunities for spend reduction

Relationship Vendor relationships are managed in a coherent, structured, and consistent manner

Decentralized Implementation Approach

6

Enterprise Vendor Management Program

VMO

Clai

ms

UW

HR

IA

ERM

F&A

IT

CAS

C,L&

EA

Delivery Vendor Engagement / Selection Close-Out Business Need

BU VRM / CM

Vendor Management Center of Excellence

High-Level Roles and Responsibilities

7

• Identify VM “better” practices • Assist in standardizing work product

• Identify VM projects and initiatives (pipeline)

• Promote use of work product

• Contribute to / review enterprise VM policy, standards, processes, and procedures (work product)

VMCoE

• Facilitate VMCoE • Consolidate and distribute enterprise metrics and reports

• Resource pipeline • Fulfill VM Policy functions

• Develop and maintain work product • Fulfill other VM functions TBD

VMO

• Utilize work product • Fulfill VM Policy functions

• Contribute to enterprise reporting • Fulfill BU-specific VM functions VRM / CM

Plan Prioritize Promote

Run Leverage Report

Build Support

Aggregate

Vendor Management Fundamentals

8

• Classification + risk = relationship management • Vendor spend analysis • Getting what you paid for

• Robust requirements • Responsible vendor review • Service levels • Contract non-compliance procedures

• Above and beyond • Vendor workshops • Sharing of plans

Vendor Classifications and Attributes

9

Vendor Classifications and Attributes

10

Vendor Classification Model

11

3

4 5

Vendor Risk Profile

12

Vendor Relationship Management

13

Vendor Spend Analysis

14

• Process of collecting, cleansing, classifying, and analyzing expenditure data from all sources within the organization (e.g., purchasing card, eProcurement) for the purposes of ensuring contract compliance, reducing costs, and improving operational performance

• Analyzes the past, current, and forecasted expenditures to allow visibility of data by supplier, by commodity or service, and by department within the organization

• Answers: • Who is spending? • What am I really spending? • With whom am I spending it? • What did I buy? • When was it bought? • Where was it bought? • Am I getting what I bought?

Vendor Spend Analysis (Example Reports)

15

Type Contains this Data Answers these Questions Category • Same / similar products or services

spend by vendor, with drill down to line item price detail

• Total spend by category and subcategories

• Total spend by category and total vendors for each category

• Are we being charged appropriately and consistently for a product or service?

• On which items do we spend the most? • Are we buying same / similar products or services from too many

vendors?

Vendor • Spend with vendor • Spend by vendor classification • Spend by contract (including

variances, change controls) • Frequency of purchases

• If we’re spending more than we anticipated with a vendor, what benefit—such as additional discounts—are we getting in return?

• How much are we spending with a particular vendor across all categories of spend?

• Of our total spend, which vendors receive the greatest share? • Of our total spend, what vendor classifications receive the greatest

share? • What’s our total spend under a particular contract? • How much are we spending under a contract compared to what we

thought we’d spend and when? • Are we spending more or less with a vendor year-over-year?

Top Ten • Top ten vendors by spend • Top ten categories by spend • Top ten by vendor classification

• What vendors do we spend the most with? • What do we buy the most of? • Of our total spend, how much do we spend with our Strategic,

Tactical, Operational, and Commodity vendors?

• Terms and Conditions Catalog • Service Level Catalog • Solicitation requirements validation • Evaluation Team and Negotiation Team qualifications,

roles and responsibilities • Contract compliancy

• Contract kick-off meeting • Contract monitoring tool

• Contract non-compliancy • Work suspension • Corrective Action Plan

Steps to Compliance-to-Contract

16

High-Level Roadmap

17

2015 Getting What We Paid For

Build Out VM Program VM Lifecycle RACI

Solicitation Requirements Validation Responsible Vendor Review

Vendor Performance Scorecard Contract – Vendor Profile

Terms and Conditions Catalog Evaluation Team Member Criteria

2016 The Year of Automation

Build Out ERP Identify Point Solutions Vendor Spend Analytics

Refine Operations Cost Containment

2017 Above and Beyond

Strategy Sharing Access to Innovation

Solve Scalability / Risk Mutual Focus on Cost Drivers